Mega Doors Company sells pre-hung doors to home builders. The doors are sold for P600 each.

Variable
costs are P420 per door, and fixed costs total P4,500,000 per year. The company is currently selling
30,000 doors per year.

1. Prepare a contribution format income statement for the company at present level of sales and
compute the degree of operating leverage.
2. Management is confident that the company can sell 37,500 doors next year. Compute the
percentage increase in net operating income for next year without preparing an income
statement.

Rainee Sales Company is the exclusive distributor for a revolutionary bookbag. The product sells for P60
per unit and has a CM ration of 40%. The company’ fixed expenses are P360,000 per year.

3. How much is the variable expenses per unit?

4. What is the break-even point in units and in sales pesos?
5. What sales level in units and in pesos is required to earn an annual profit of P90,000?

Delta Chi Sorority is planning its annual Riverboat Extravaganza. The Extravaganza committee has
assembled the following expected costs for the event:
Dinner (per person) P7
Favors and program (per person) 3
Band 1,500
Tickets and advertising 700
Riverboat rental 4,800
Floorshow and strolling entertainers 1,000

The committee would like to charge P30 per person for the evening’s activities.
6. Compute the break even point in terms of the number of persons that must attend.
7. Assume that only 250 persons attended the Extravaganza last year. If the same number attends
this year, what price per ticket must be charged to break even?
8. Which of the following will result in raising the breakeven point?
a. A decrease in the variable cost per unit
b. An increase in the semivariable cost per unit
c. An increase in the contribution margin per unit
d. A decrease in income tax rates
9. When used in CVP analysis, sensitivity analysis
a. Determine the most profitable mix of products to be sold
b. Allows the decision maker to introduce probabilities in the evaluation of decision
alternatives
c. Is done through various possible scenarios and computes the impact on profit of various
predictions of future events
d. Is limited because in CVP analysis, costs are not separated into fixed and variable
components
10. The margin of safety is a key concept of CVP analysis. The margin of safety is
a. The contribution margin rate
b. The difference between budgeted contribution margin and breakeven contribution
margin
c. The difference between budgeted sales and breakeven sales
d. The difference between the breakeven point in sales and cash flow breakeven